Japan appears to have made the same mistake twice now. After demonstrating a willingness to confront China over contested territory, it backed down as China seemed to escalate the issue. In a similar vein, Japan was willing to take on the foreign exchange market by selling JPY2.125 trillion yen (confirmed by the MOF today), which appears to be a record one day amount. Japanese exporters and margin accounts reportedly sold into the dollar's gains the BOJ engineered. But that has been it. Japanese officials appeared to have backed off and one official this week was even talking about the virtues of a strong yen. The dollar fell every day last week against the yen and is now 1 yen lower than it had finished last week.
Yes the intervention was criticized in some quarters, but Japanese officials had to have expected that. Yes the odds of unilateral, even unsterilized, intervention working was also slim, but Japanese officials must have known appreciated that too. Yet they made the judgment call and the lack of follow through can only embolden yen buyers.